BHI: Behind big gains in Texas, US rig count jumps 15 units

The US drilling rig count gained 15 units to 462 during the week ended July 22, representing its biggest increase since this week a year ago, according to Baker Hughes Inc. data. Fourteen of the units to come online are oil-directed.

Rising in 7 of the last 8 weeks, the count has added 58 units since its first increase in 41 weeks on June 3 (OGJ Online, July 15, 2016). Last summer’s short-lived rebound comprised just a 28-unit gain between June 19 and Aug. 21.

Oil and gas consulting service Rystad Energy last week noted in its shale newsletter that US “operators immediately began adding rigs targeting their most prolific shale areas” during June as Brent and West Texas Intermediate crude oil prices hovered just below $50/bbl.

Specifically, it cited Concho Resources Inc. and Energen Corp. respectively adding 7 and 6 units in the Permian during the month. The firm expects a more cautious approach from large operators such as EOG Resources Inc., Chesapeake Energy Corp., and Devon Energy Corp.

A persistent oil price of about $50/bbl—a threshold that’s far from a given to be reached again in the near term in light of recent declines—would enable shale drilling in the core regions. Rystad believes 70% of the shale drilling activity in North America would be concentrated in the top activity plays, namely the Eagle Ford, Bakken, Permian, and Niobrara.

“With the oil price expected to surpass $50/bbl as early as 2017, drilling activity can potentially start again in the noncore areas,” the firm said. The US Energy Information Administration this week noted that, amid lower budgets and higher oil prices, cash flow is now covering a larger portion of US onshore operators’ capital expenditures (OGJ Online, July 18, 2016).

Data from fellow consulting firm Douglas-Westwood, meanwhile, suggests that 16% of the North American rig fleet has been scrapped since January 2015.

“Like the operators, rig contractors themselves are focused on free cash flow,” it explained last week. “Efficiency of operations and uptime are critical, and key rig components are being recycled from one rig to another to minimize spend on new hardware. Where new rig components are required, our clients are reporting a trend towards increasing adoption of Chinese-manufactured parts. Efficiency and safe operations are also boosted by the continued uptake in automated rig equipment.”

Onshore oil rigs streaking

Up 14 this week, the count of active oil-directed rigs now totals 371, a rise of 55 units since May 27. Compared with its peak in BHI data on Oct. 10, 2014, the total is now down 1,238 units.

Gas-directed rigs edged down a unit to 88, while 2 rigs considered unclassified started operations to bring their count to 3.

Land-based rigs jumped 18 units to 440. A majority of those were horizontal, whose count rose 13 units to 357, up 43 units since May 27 and down 1,015 units since a peak in BHI data on Nov. 21, 2014. Directional drilling rigs edged up a unit to 44.

Three units stopped work offshore Louisiana, erasing last week’s 3-unit gain and returning the overall US offshore count to 19. Three rigs remain operating in inland waters.

Canada’s count continued its upward momentum with a 7-unit increase this week to 102, up 66 units since May 6. Oil-directed rigs rose 4 units to 48 while gas-directed rigs rose 3 units to 53.

Texas lifts US count

A main hub of US oil and gas activity, Texas posted its largest increase this week in nearly 2 years, gaining 15 units to 217 rigs working, up 44 units since May 27. Compared with its peak in BHI data on Aug. 29, 2008, the state is down 741 units.

The Permian rose 8 units to 168, an increase of 34 units since May 13. After nearly halving last week, the tally of active rigs in the Barnett added 3 this week, bringing its total to 8. The Eagle Ford gained 2 units to 35. The Granite Wash increased 1 unit to 9.

Amid the recent rebound in the Permian, Wood Mackenzie notes that the Midland and Delaware basins have experienced smaller declines in drilling activity compared with their peers since the drilling dive began. The firm attributes the Permian’s resilience partly to many of its rigs being concentrated in the best areas and the stacked pay potential of its plays.

“The Midland and Delaware basins hold the largest number of undrilled, low-cost tight oil locations in the Lower 48. No other region comes close,” said Jeanie Oudin, WoodMac senior research manager, Lower 48, in the analysis released by the research and consultancy firm this week.

Elsewhere, California recorded its first multi-rig increase since late 2014, gaining 2 units to 7. New Mexico rose a unit to 26, up 7 units over the past 3 weeks.

Other basins to record an increase were the DJ-Niobrara, up 2 to 18; and Mississippian, up 1 to 6. The Cana Woodford dropped a unit to 28.

Three states posted declines. Louisiana fell 2 units to 44, Alaska lost a unit to 6, and Kansas’s only active rig went offline.

Among the first major US exploration and production firms to release its second-quarter results, shale gas producer Southwestern Energy Co. said this week it plans to increase its companywide rig count to 5 by the end of the third quarter. The firm this week reinitiated drilling with its first rig in Northeast Appalachia.

Of the 5 rigs, 2 will be in Northeast Appalachia, 2 in Southwest Appalachia, and 1 in Fayetteville. Southwestern also expects to complete 90-100 wells in the second half, including new wells drilled and a portion of its inventory of previously drilled but uncompleted wells.

Contact Matt Zborowski at matthewz@ogjonline.com.

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